Competition heats up in global reinsurance industry: Fitch

Competition in the global reinsurance industry is expected to intensify, leading to pressure on earnings, since “reinsurance has proved to be one of the most resilient of all insurance sectors through the financial crisis,” according to a new report by Fitch Ratings.Fitch’s rating outlook for the global reinsurance industry remains Stable.”The relative attractiveness of the reinsurance operating environment has resulted in an intensification of competitive conditions, and prospects for continued strong earnings have diminished for many global reinsurers,” says Chris Waterman, managing director in Fitch Ratings’ Insurance group in London. “Fitch considers that the next 12-24 months will prove to be a period of notable differentiation between companies.”The report observes that global reinsurance premium rates are edging lower, there is reduced demand for reinsurance capacity among cedants and therefore reinsurers face ongoing challenges in developing sustainable levels of investment income in the current environment.”Fitch believes that many of the traditional drivers of reinsurers’ historical profitability, such as investment income and the release of prior-year reserves, are unlikely to support earnings over the near-term,” the ratings agency says in a release announcing its 2010-11 Global Reinsurance Review and Outlook. “As a result, the agency views underwriting discipline and proactive cycle management as critical to reinsurers’ future profitability.”